Dr Bharat Jhunjhunwala
The results of the elections to the three municipal corporations od Delhi and the five states are being interpreted by the Government as an endorsement of its policies. However, Goa, Manipur and Punjab too should have voted for the BJP if that were true. The inability of the BJP to attain majority in these states indicates that the voters have not endorsed the policies. There has been a negative vote in Delhi because of the corruption among the AAP legislators; in UP against the Samajwadi Party because people were fed up with the Yadava tyranny unleashed by the Party; in Uttarakhand against the Congress because people were fed up with the mafia raj unleashed by Chief Minister Harish Rawat. He repeatedly asserted “Na kahata na bahi, jo Harish kahe vo sahi,” meaning “neither books nor accounts, what Harish says is true.” There has been a negative vote in Punjab against the Shiromani Akali Dal-BJP coalition because people were fed up with the ruling family capturing all contracts. The common feature in the results of the three major states is the negative vote against the ruling party, including the BJP. Therefore, there is no endorsement of the policies of the Government. The danger is that the Government will consider these results to be a mandate for the same policies which have failed in the last three years.
The first policy implemented by the Government was of “Make in India.” The Government wanted to replicate the success of China in attracting Multinationals to manufacture goods for the global market. However, the Government has failed to attract any big ticket investments. In fact, there has been an outflow of foreign capital from the country in the last two years. Reason is the economies of the developed countries are contracting. President Donald Trump wants the American Multinationals to come back to the United States and manufacture in America rather than in foreign countries. It is futile to run after foreign investment in this situation. The Government should have focused on preventing the outflow of Indian capital. The infatuation with foreign investment has led to weak domestic investment which has been ignored and the growth rate has been flat since the present Government came to power.
The second policy of the Government was of Jan Dhan scheme. Large numbers of the poor people were encouraged to open bank accounts to promote financial inclusion. Belief was that the poor will be able to access bank loans through these accounts and will be liberated from the clutches of the moneylenders. That has not happened, however. Banks are as reluctant to give loans to the Jan Dhan account holders today as they were previously. Final result of Jan Dhan has been to transfer 20,000 crores of poor people’s money to big borrowers. “Financial inclusion” has become a route to financial deprivation. Further, banks have increased the charges for minimum balances and other services in order to recover the expenditures incurred by them in managing the large numbers of Jan Dhan accounts. The final result of this scheme has been that the money deposited by the poor accountholder has been routed to the big borrowers while the ordinary account holder has been straddled with higher bank charges.
Third policy of the Government was to make Soil Health Cards for the farmers so that they could apply the correct quantities of the fertilizers and increase their production. Crop insurance was subsidized to protect them from natural calamities. The main problem of the farmers, however, is that they do not get a good price for their produce. The price of potato, for example, had drastically declined after demonetization. I had an occasion to visit Gujarat and found bags full of potatoes dumped on the roadside. Farmers are not able to recover even the cost of harvesting and transporting their produce to the market. An increase in production or protection from natural calamities will scarcely help in this situation. In fact such schemes distract from the real problem of prices and push the farmers deeper into the red. Our governments have focused on securing an increase in agricultural production in the last seven decades since Independence. Considerable success has been achieved in this endeavor. But the farmer continues to be under distress. Increased production has led to s decline in prices and increased his woes.
Fourth policy of the Government was to provide incentives to the generation of employment. The Government will provide the Provident Fund Contribution for new employees for the first few years. The problem, however, is that industries are increasingly using automatic machines in the manufacturing process. The numbers of existing workers are being reduced across manufacturing units. The total employment in manufacturing is declining. Industries will scarcely employ new workers and avail of these incentives in this situation.
Fifth policy of the Government was of demonetization. The Government wanted to control the menace of black money. However, hoarding of currency notes is only the symptom of the problem. Black money is generated for avoidance of excise duty and income tax. This is done almost always with connivance of the tax officials. There would be no generation of black money if the tax officials were honest. Demonetization is like administering pain killer to a person suffering from cancer. The black money has quickly regenerated after demonetization just as the pain soon reappears after administering pain killer.
The drive towards a cashless economy has imposed additional burdens on the common man. There is a cost to cashless transaction. One has to buy a smartphone. She had to top up with a data pack. Then every transaction takes additional time. One has to ask the phone number of the shopkeeper, then transfer the money, then confirm whether the money has been received. Also she has to deposit some money in her account with payment portals like Paytm. This money would have earned some interest if it lay in her savings account. Instead Paytm earns the interest on this amount. In the end, the people have to bear the costs of cashless economy while black money remains unscathed.
It is clear that the policies implemented by the Government are a failure. The BJP has secured majority in Municipal elections in Delhi, UP and Uttarakhand despite these policies because of the negative vote against AAP in Delhi, Samajwadi Party in UP and the Congress in Uttarakhand. The danger is that the Government will construe the present electoral victory as an endorsement of its failed policies, implement them with a greater gusto and push the country deeper into troubles.
(The author was formerly Professor of Economics at IIM Bengaluru)
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